Tax Tips & Calculators

Available Education Credits

There are 3 credits allowed for higher education at an eligible institution: the Hope Credit, the American Opportunity Credit and the Lifetime Learning Credit. You can claim the credits for eligible expenses paid on behalf of yourself, your spouse or a dependent for whom you can claim an exemption.

• Hope Credit — The credit is allowed for the first 2 years of college. It may not be claimed for more than 2 years, and the student must be enrolled in at least half of a full-time load in a degree program. Plus, the student can't be convicted of felony possession of a controlled substance.
  
• American Opportunity Credit — The credit is allowed for the first 4 years of college. It may not be claimed for more than 4 years. The student must be enrolled in at least half of a full-time program load in a degree program. Plus, the student can't have been convicted of felony possession of a controlled substance.
• Lifetime Learning Credit — This credit can be claimed for any number of years. The number of hours the student is enrolled and drug felony convictions aren't factors for the Lifetime Learning Credit.

You can claim either the American Opportunity Credit or the Hope Credit. Or, you may claim the Lifetime Learning Credit. However, you can claim only 1 of the credits for any student. For example, you can claim either an American Opportunity Credit or a Hope Credit for your son and the Lifetime Learning Credit for your daughter, but you can't claim both credits on behalf of either of the children.
Note: You cannot claim the American Opportunity Credit for any student if you claim the Hope Credit for a Midwestern Disaster Area victim for one or more students.

Married taxpayers filing separate returns can't claim any of the education credits.

To claim the Hope Credit or Lifetime Learning Credit, modified adjusted gross income (MAGI) must be less than $60,000 ($120,000 for Married Filing Jointly). You can claim the American Opportunity Credit if MAGI is less than $90,000 ($180,000 for Married Filing Jointly). Forty percent of the American Opportunity Credit is refundable, which means you will receive that part of the credit even if your tax is reduced to zero.

If the parents are eligible to claim the student as a dependent, they claim the credit unless they choose not to claim the exemption for the student. The student can't claim his or her exemption even though he or she can claim the credit.

Note: For students who attended an eligible educational institution in a Midwestern disaster area, the Hope Credit can be as much as $3,600. The Lifetime Learning Credit for such students is 40% of eligible expenses with a maximum credit of $4,000.

Tuition and Fees Deduction

If your MAGI is $65,000 ($130,000 if Married Filing Jointly) or less, you can deduct up to $4,000 of eligible tuition and fees for yourself, your spouse or a person for whom you claim a dependent exemption. If your MAGI is between $65,000 and $130,000 ($130,000 and $160,000 if Married Filing Jointly), you can deduct up to $2,000 of eligible tuition and fees. If your MAGI is more than $80,000 ($160,000 or more if Married Filing Jointly) you can't claim the tuition and fees deduction.

You can't claim the deduction if you're Married Filing Separately, if another person can claim you as a dependent, or if you were a nonresident alien for any part of the year (unless you elect to be treated as a resident alien).

You can claim the tuition and fees deduction or an education credit for a student, but not both. Choose the benefit that results in the larger tax savings. You can't use expenses used to figure this deduction when figuring the exclusion for savings bonds interest or the exclusion for income from a distribution from a Coverdell ESA or QTP. You also must reduce the expenses used to figure this deduction by the amount of tax-free scholarships and nontaxable employer-provided educational assistance you received.

Student Loan Interest Deduction

You may be able to deduct up to $2,500 of interest payments on a qualified student loan if your modified adjusted gross income (MAGI) is less than than $75,000 ($150,000 if Married Filing Jointly). You can't deduct student loan interest if someone else claims you as a dependent or if you're Married Filing Separately. For the Student Loan Interest Deduction, a dependent includes the following:

• An individual who was not eligible to be claimed as a dependent because the individual filed a joint return.
• An individual who was not eligible to be claimed as a dependent because the individual had gross income of $3,650 or more.
• An individual for whom you can't claim an exemption only because you're the dependent of another taxpayer.

The loan can't be from a related person or made under a qualified employer plan. You can deduct the interest only if you are legally required to make payments on the loan.

The student must be enrolled at least half-time in a program leading to a degree or other recognized educational credential.

You can't claim the deduction for student loan interest if a deduction for the interest would be allowed under another rule (for example, under the rules for home mortgage interest).

The Student Loan Interest Deduction is taken as an adjustment to income, so you can claim this deduction even if you don't itemize deductions on Schedule A (Form 1040).

Work-related Education and Employer-provided Educational Assistance

You may be able to deduct the cost of qualifying work-related education as a business expense if you weren't reimbursed by your employer or if the cost exceeded your reimbursement. You can claim the deduction only if you itemize deductions. The deduction is one of the deductions subject to the 2% of adjusted gross income floor. The education must also meet one of these criteria:

• The education is required by law or by your employer to keep your present salary, status or job.
• The education maintains or improves skills needed in your present work.

If the education is needed solely to meet the minimum educational requirements of your present job, or will qualify you for a new trade or career, you can't deduct the educational expenses. Tuition and fees you can't deduct because they don't meet the requirements may be deductible as part of the tuition and fees deduction discussed above. It's generally better to claim the tuition and fees deduction.

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. Payments in excess of $5,250 are taxable unless the payment qualifies as a working condition fringe benefit. The payment will qualify under this provision if you could deduct the education expense if you paid for it. Benefits include payments for tuition, fees, books, supplies and equipment. The payments may be for either undergraduate- or graduate-level courses. To qualify, the plan must be written. Your employer will include the taxable amount (if any) in your W-2 wages.